»Ê¹ÚÌåÓýapp

With-profits

Traditionally, the most common form of investment-type life policy is the with-profits policy commonly used for endowment policies, including mortgage endowments. »Ê¹ÚÌåÓýappre is aminimum ‘sum assuredâ€� that is augmented through the declaration of’bonusesâ€�, reflected in policyholdersâ€� reasonable expectation to share in profits and the insurersâ€� duty of fairness.

’Sum assured� is the cash benefit guaranteed by the insurer. It is different from the ’surrender value�. This is the cash value of a whole life or endowment insurance when discontinued, and can be small in the early years of a policy when expenses are high but there has been time for little growth.

’Reversionaryâ€� or annual bonuses are generally declared year by year. »Ê¹ÚÌåÓýappy are guaranteed additions to the sum assured and payable in the same circumstances. Additionally, a ’terminal bonusâ€� may be declared at maturity or surrender, at the discretion of the insurer. Benefits may therefore comprise sum assured, accrued reversionary bonuses and a terminal bonus. »Ê¹ÚÌåÓýapp insurer determines the amount of bonuses following an actuarial assessment of its obligations to policyholders and the value of its with-profits funds.

»Ê¹ÚÌåÓýapp popularity of with-profits policies has declined somewhat following, amongst other things, adverse stock market conditions that resulted in some insurers making ’market value reductionsâ€� to the value of the reversionary bonuses. »Ê¹ÚÌåÓýappse may be applied if the value of the fund assets falls and the viability of the fund is threatened. »Ê¹ÚÌåÓýappre has also been criticism of the opacity of the valuation and award process. »Ê¹ÚÌåÓýapp advantage lies in the smoothing of returns that protects in some measure against adverse stock market movements.

Unitised with-profits

Some insurers offer ‘unitisedâ€� as well as conventional with-profits policies. Here a with-profits fund is notionally split into units. This is purely an internal bookkeeping exercise and the units are not like the units in unit trusts. »Ê¹ÚÌåÓýapp‘unitsâ€� are backed by a pool of assets, or fund, into which the premium is paid. But the bid price, or value of units to the investor, is not directly linked with asset movement, as it would be if the policy were unit-linked. Instead, the insurer controls the price of units, or sometimes the number of them, by allocating bonuses to the tranche of policies to which the units relate. »Ê¹ÚÌåÓýapp fund in question is often a specified sub-fund rather than a whole with-profits fund.

Sometimes the term may be applied to with-profits and investment-linked funds comprised in the same policy with the choice of switching between the two.

Without-profits

In this case there is a fixed sum assured. It may refer to a variety of products

• term insurance - pure protection
• unit-linked policies, where there is no smoothing, see IPTM1400
• guaranteed and indexed bonds, see IPTM1420
• fixed return.

Further reference and feedback, see IPTM1013